The Dangers of Dual Representation

 

Imagine a lawsuit involving malpractice in which a patient sues a medical practitioner for damages for a mishandled procedure. To help negotiate the complexities of the legal system, the plaintiff hires an attorney who in turn files the appropriate paperwork against the doctor. Can you imagine the plaintiff’s surprise if when he arrived at a settlement hearing he discovered that his own attorney also represented the defendant? He would immediately abandon any hope of receiving fair legal counsel. After all, how can an attorney represent two sides of a complex negotiation fairly?*

A dental practice sale is an equally complex transaction requiring the involvement of professional transition consultants.  Their legal and accounting expertise provide both the seller and the buyer with the assurance that their interests are being carefully protected. Although some dentists may be tempted to sell or purchase a practice without professional transition consultation, it is important to recognize the value transition brokers bring to the process. Equipped with the financial tools and experience needed to conduct accurate cash flow assessments and to target comparable practice listings, transition brokers offer both parties essential information upon which to make informed decisions. Attempting the transition process without their guidance risks overlooking important variables that may ultimately cost you money.

While the value of a qualified practice broker cannot be overstated, their role should be limited to the representation of one party of the transaction. When a single broker represents both the seller and the buyer during a transition – a situation referred to as dual representation –  serious conflicts of interest arise similar to those illustrated above in our hypothetical malpractice case.

Consider a few of the legal and financial hazards of dual representation:

It May Be Illegal: In some states, the practice of dual representation is actually forbidden by law.

Conflict of Interest: Brokers are often paid a percentage of the settlement and so are eager to close the deal.  They may make concessions to your position without informing you in an attempt to close the deal.

Unethical: A broker cannot maintain ethical objectivity when representing both parties in a transaction. At some point, a dual representation transaction will force the broker to favor one party over the other.

Adversarial: Dual representation situations tend to lead to conflict and argument between the buyer and seller, and may cost you more money in legal and negotiation fees.

Discourages Outside Expertise:  Dual representative brokers will often discourage the involvement of other transition experts and legal advisers who might challenge their unilateral control of the situation.

Some brokerage firms will advertise dual representation as a superior, more thorough form of transitioning a practice. At ADS Watson, Brown & Associates, we discourage this practice and recommend partnering with a transition expert who has your best interests in mind. While we aim for a win-win situation that will be mutually beneficial in the long run, each party needs the guidance of experienced professionals throughout the complex process of a dental practice transition.

*Attorneys are subject to a code of professional responsibility and a cannon or legal ethics. The general rule is that attorneys cannot represent two parties that may have an adverse interest. (see TDRPC Rule 1.06. Conflicts of Interest). The legal profession has long realized that when a conflict of interest arises between parties there will be a compromise of injustice to one or both of the parties. This same standard of care carries over into the transition and sale of a dental practice.